Mixed feelings with a tilt towards the negatives of public private partnership (PPP) have been there, due to, what the observers consider, the lack of sufficient drive and a secure mechanism of collaborative funding. This has particularly been the case, ever since the announcement by the government of its decision to execute large development projects under the much-hyped PPP arrangement in its previous term. Instances of excellent performance under PPP however are aplenty in many countries, including some of the South Asian neighbours. But PPP in Bangladesh has not made any headway, and the government, too, has otherwise been found to be a bit muted on the issue for a considerable period of time.
Lately, some initiatives are on, and understandably, all that the government is up to, is to make the partnership look more attractive by way of incentives. True, incentives, especially financial and fiscal, do play a part in businesses. But at times they tend to become self-limiting, impeded by difficulties in the core functioning of business activities. In the process, the motivation that incentives are meant to spur does not follow the desired route. This is true to the investment situation in the country, both inside and outside the Export Processing Zones (EPZs). The pertinent question is thus: can the government make PPP a potentially attractive field for big private investments in collaboration with the government?
The government introduced the PPP programme in the fiscal year (FY), 2009-10, and earmarked Tk 25 billion to start with. Subsequently, although the allocation was raised to Tk 30 billion in the fiscal 2010-2011, the utilisation against this allocation was far from reality. A total of about 40 infrastructure projects involving $10 billion were designed for those in various sectors. But involving private investment still looks difficult on the face value of the policy statements.
Against this backdrop, the relevant authorities have reportedly framed a package of wide-ranging incentives that would mostly focus on fiscal-centric benefits in terms of rebates and waivers. Some of the key incentives would, according to available reports, include full exemption of corporate income tax for 10 years from commercial operation or half of the contract period, whichever is greater. Tax holiday benefit would be for two more years (12 years) for PPP projects in rural areas or in those parts that are inhabited by the under-privileged population. The draft package also proposes full exemption from capital-gains tax arising out of transfer of shares in PPP companies by any shareholder. Presently, tax at the rate of 15 per cent is charged on capital gains from sale of shares of PPP companies. It further recommends for full exemption of tax from interest income of foreign lenders from PPP projects. Presently, interest income, earned by foreign lenders on their loans to projects in Bangladesh, is taxable.
In addition, the package offers full income-tax exemption up to three years for expatriate employees and consultants. To help minimise tax burden on PPP projects, the draft package has furthermore proposed full tax relief on preferred share dividend, corporate tax at the rate of 27.5 per cent for banks, insurance companies and other financial institutions on their returns on investment in PPP companies against the current 42.5 per cent. The package also offers rebates and exemptions applicable to repatriation of royalties, insurance etc. Whether the government is compromising on substantial revenues by providing such benefits is a critical issue here. Questions still remain whether they will still work to make PPP look lucrative enough
